Nasdaq closes in on a test of 2,000

Tuesday's set ups: IIX, YHOO, EBAY, DNA, PFE, PPH, BSX, DRS, FD

EDITOR'S NOTE: This is a free edition of The Technical Indicator, a daily newsletter from MarketWatch. For a more detailed account of the markets on a day-to-day basis -- in addition to 100 trading ideas per month -- please subscribe to The Technical Indicator.

U.S. wholesale prices rose a larger-than-expected 0.6% in April, ahead of the consensus expectation for a 0.4% increase. At the same time, the core PPI - excluding volatile food and energy prices - rose 0.3%, slightly stronger than the expected 0.2% rise.

The S&P 500's hourly chart above serves as a detailed view of the past two weeks.

With Monday's gains, the S&P edged back above its 200-day moving average, which currently holds at 1,159.

It also edged slightly above former resistance at 1,163.

Yet in the aggregate, the two-week picture illustrated above doesn't scream raging bull just yet. For all practical purposes, the S&P continues to test its 200-day moving average, holding the middle of its two-week range.

The near-term picture on the Dow Industrials looks similar to that on the S&P.

Yet one notable difference is the Dow already holds comfortably under its 200-day moving average, currently at 10,384.

That aside, the Dow lifted Monday, placing it roughly in the middle of its two-week range.

The Nasdaq is where the picture looks noticeably different.

At Monday's close, Nasdaq held two-week highs, stalling just 1 point shy of its 200-day moving average.

So after months of underperforming the broad markets - or just outright leading the markets lower - the Nasdaq's recent strength stands out as unusual.

Taken together, the Dow and the S&P 500 look absolutely trendless near-term, while the Nasdaq is now challenging important resistance.

Widening the view to the daily time frame adds perspective to the Nasdaq's recent price activity.

At this point, the index has established several longer-term technical levels now crammed within a relatively tight range. Areas of interest include:

The former breakdown point spanning from 1,968 to 1,971.

The 50-day moving average, currently at 1,980.

The 200-day moving average, currently at 1,995.

The 2,000 level, which carries the least technical significance.

The January low at 2,008.

And the levels just bulleted don't include its four-month downtrend, which now matches closely with its 200-day moving average.

So again, the Nasdaq has placed itself roughly in the middle of that 40-point band.

Near-term the most important area holds at the cross section of its 200-day moving average and its four-month downtrend. That's just 1 point above Monday's close.

If somehow the index would sustain a break above its 200-day moving average -which doesn't necessarily look likely - then the next important technical level holds at the April high of 2,021.

A close above that April high would mark a new "higher high" increasing the chances of a sustainable new leg higher.

The Dow Industrials remains under the breakdown point.

After breaking sharply under its 200-day moving average in mid-April, the index has attracted sellers in that general area.

Late last week, the S&P 500 edged lower to retest its 200-day moving average.

So after twice observing its 50-day moving average as resistance - illustrated in black - the S&P may be positioned to retest the April lows.

The bigger picture

Even after Monday's solid gains, the longer-term technical picture is essentially unchanged.

That is, the markets broke down hard in mid-April, extending the downtrend that originated in mid-March. And for the time being, that breakdown continues to dictate the current trend - which is lower.

Still, at Monday's close the Nasdaq did challenge its 200-day moving average, which closely matches its four-month downtrend. In the context of the past year, a divergence involving the Nasdaq is not something to dismiss lightly.

Remember, the Nasdaq was the first index to bottom all the way back in mid-August. It was also the first index to signal potential weakness in early January.

So without question, recent Nasdaq strength is notable. The only problem is that its recent lift has come on weak volume, behind neutral internals, and follows the complete collapse in commodities last week.

That leaves the question as to whether recent technology strength marks a sustainable shift in sentiment, or simply reflects a flight-to-anything-else response to last week's commodities sell off.

As a practical matter, the Nasdaq's response to the resistance bulleted above - and especially its 200-day moving average at 1,995 - will be the areas track. If it manages a sustainable strong-volume break higher, the backdrop will improve.

But remember, those trendlines are drawn in for a reason. Every lift to the Nasdaq's downtrend has attracted enough sellers to send the markets lower. Until that relationship no longer holds, the longer-term trend will be lower.

Tuesday's watch list

The charts below identify names worth tracking from a technical perspective. These are intended as radar screen names - sectors or stocks positioned to move near term. For the original comments on the stocks below, check out The Technical Indicator Library.

Index

Symbol

Mon Close

Support

Resistance

Internet Index

IIX

150.65

145.8

152.4

In a market where technology sectors chronically look horrible, the Internet Index is showing signs of life.

In early May, the index cleared a four-month downtrend, also reclaiming its 50-day moving average. Since then, it has stabilized above its 50-day as support, and now holds within striking distance of its 200-day moving average.

On Monday, it closed above its 200-day moving average for the first time since June 2004. The move comes from a bullish ascending triangle, a pattern that would be resolved with a close above the April high at $28.23.

Company

Symbol

Mon Close

Support

Resistance

Pharmaceutical HOLDRs

PPH

$75.27

$73.50

$76.45

The Pharmaceutical HOLDRs
PPH, +1.63%
representing a basket of drug makers, are also positioned to rise.

Since spiking in mid-April, it has pulled back to find support around the breakout point at the December and March highs. Monday, it lifted from support, placing it within striking distance of 10-month highs.

Company

Symbol

Mon Close

Support

Resistance

Boston Scientific

BSX

$30.75

$29.75

$31.30

Boston Scientific
BSX, +1.31%
is a medical device company positioned to rise.

Last week, it traded back above its 50-day moving average, also clearing a five-month downtrend. Its already bullish near-term outlook would further improve on a close above its two-month range top at the April high around $31.30.

Over the past four months, it has lifted from a bullish ascending triangle, suggesting the shares have attracted buyers at progressively higher prices. Last week, it resolved the pattern, making 52-week highs on increased volume despite a choppy market.

Company

Symbol

Mon Close

Support

Resistance

Federated Department Stores

FD

$64.96

$62.00

$65.08

Along with Urban Outfitters, Federated Department Stores
FD
is among the few retailers exhibiting relative strength.

Monday, it closed just under all-time highs, and barring a close back under its 50-day moving average, the near-term outlook should favor further gains.

Still well positioned

The table below includes selected names recently profiled in The Technical Indicator that remain well positioned. For the original comments on the stocks below, check out The Technical Indicator Library.

EDITOR'S NOTE: This is a free edition of The Technical Indicator, a daily newsletter from MarketWatch. For a more detailed account of the markets on a day-to-day basis -- in addition to 100 trading ideas per month -- please subscribe to The Technical Indicator.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.